Oliver Brennan, FX Volatility Strategist, BNP Paribas

Alpha Exchange

Even if very short-lived, market vol episodes as protracted as that of Monday August 5th, demand our attention. In seeking some understanding of the why of successive 10% NKY moves and a 65 pre-open handle on the VIX, it was a pleasure to welcome Oliver Brennan to the Alpha Exchange. An FX vol strategist at BNP, Oliver brings theoretical training in physics to the related but also very different world of option pricing. In setting up the discussion, we first explore a series of past FX vol episodes including the Euro-Swiss break and CNH re-peg in 2015 and Brexit from the following year. At the heart of these events lie economic imbalances and Central Banks that get tested by the market to hold the line.
We shift to a discussion of the setup going into early August in the Japanese Yen. Always an investment currency because of its balance of payment profile, Oliver argues that carry trades had gotten especially extended as dollar/yen trended so consistently higher. Market participants were long calls and long carry, and the dealing community was especially exposed to an increase in both realized and implied vol. He notes the absence of corporate supply as well of Yen vol in this recent event, something that exacerbated the repricing. With the tails especially under-owned, the more than 6% sell-off in dollar/yen caught the market well off-sides.
I hope you enjoy this episode of the Alpha Exchange, my conversation with Oliver Brennan.